Prospering Through Collaboration
and Supply Chain Visibility
Jointly sponsored by
Our sponsors
“WMG is an outstanding example of combining academic
excellence with industrial relevance – a unique international
contribution, which we are all proud of”. Tony Blair.
Joined-up thinking
“An efficient supply chain depends on the easy exchange of
information between participants, but for too long IT systems
have struggled to provide the smooth flow of orders, delivery
notes and forecasts necessary to keep goods moving freely”.
John Lamb 2005
“Strategic growth depends on integrating with trading partners
in the supply chain” – Spencer Marlowe 2005
“The concept of supply chain collaboration
has been applauded for years, but it falls
short in practice because participants rarely
act in concert for the greater good of their
supply chain…….
The goal of collaboration is to compress
overall (supply chain) costs, not shift them
between partners”.
Finley and Srikanth 2005
“…..it is clear that collaborative initiatives are not being
held back by systems, as generally the technology
solutions are available. Where companies lag behind
is in terms of their people skills…if you don’t trust and
don’t know how to work effectively with your trading
partners, then relationships break down and performance
is impaired. For this reason, companies must adopt a
mindset of sharing information – some of it potentially
commercially sensitive…….”
A Waller and C Geldard 2005
Definitions
Visibility –
Clarity of vision; how well we see something.
The ability to understand and interact
with enterprise data for analysis and
for making better business decisions.
Collaboration – diverse entities working together
- to cooperate traitorously with the enemy
Building a Supply-Chain and
making it visible
An exploration of low cost
technology.
Dr. Jay Bal
Warwick Manufacturing Group
Visibility and Collaboration –
linked?
Visibility
"An efficient Supply-Chain depends on the easy exchange of
information between participants".
Collaboration
Recent AMR research identified four levels of supply chain
progress - Reacting, Anticipating, Collaborating and
Orchestrating. The research found that only one sector consumer electronics - had reached the collaborating stage.
No company had reached the orchestrating level.
Moving Up the Food Chain
Exploiting E-Business
The Value System
Suppliers
Distributors
Competitors
Value and Demand Information
Cost and Supply Information
Buyers
Priess INTERPRISE
RELATIONSHIP
MODEL
REWARD Y
Shared Risk
and Revenue
Variable Payment
need for movement
towards enriching solutions
Manual Fax,
Phone, Mail
Electronic Data
Interchange (EDI)
Development
Process Linkage
Business
LINKAGE Z
Collaboration
Unit Price
Current
Current
position of
position
of
automotive
automotive
SMEs
SMEs
Simple
Standard
Product
ENRICHMENT X
X
ENRICHMENT
Much Before
and After -Sale
Value -Adding
Knowledge
and Service
Many Suppliers, with many
modules!
mySAP Supply Chain Management
Dashboards
Existing Solutions
 Too Fragmented
 Too Costly
 Require Too much IT
 Don’t Reach down to the small supplier
 Not flexible enough
West Midlands
Collaborative Commerce Marketplace
A FREE online hub for Small Businesses in the West Midlands to ….
1. Access New Business Opportunities…
…based on what you Can do, not what you do now!
2.
Form New Partnerships…
…to help address new opportunities.
3. Sustain that Business…
…collaborate on-line to support communication & delivery.
Other Similar? Portal
GatewayAsia
WMCCM Supply Chain
Module
 Low Cost
 Many to Many Visibility
 Embedded Functionality
 Combines Bill of Materials (BOM) and Process
viewpoints
 Definable “heartbeat”
 Data Collection and Store
SC definition
 Component
Process
Measure Definitions
Measure Values
Alerts / Notifications
Component Attributes
Subcomponent(s)
Measure Property

Each measure requires the following properties:

A name by which it is identified

A ‘low’ value below which the status for the process becomes
“amber”
·
A ‘low’ value below which the status for the process
becomes “red”.
(this obviously has to be lower than the ‘low’ value
defined
for the amber status
·
A ‘high’ value above which the status for the process
becomes
“amber”
·
A ‘high’ value above which the status for the process
becomes
“red”.
(this obviously has to be higher than the ‘high’ value defined for the
amber status



How the solution works!
A
D
C
F
B
E
F
D
E
C
BOM Structure
B
A
Application Scenario
A
D
Black Box
SN
Vehicle ID
C
F
Storage
B
SIM Card
ID
E
Vehicle ID
Activation
Control
WMCCM Supply Chain
Module Demo
To find out more about the complete WMCCM service and
how it WILL benefit YOUR company, visit
www.wmccm.co.uk
Or why not register your details with us today …
Any Questions?
Contractual Problems
Inherent in Collaboration
Richard Hickman
[email protected]
Prospering Through Collaboration
and Supply Chain Visibility
14th September 2005
Dimensions of
Collaboration
 Concepts of dimensions that influence
transactions from O E Williamson
 Asset Specificity
 Uncertainty
 Frequency
 Examples from LOTiSS Research in Defence
Long-Term Service Support Collaborations
Specific Assets, Bilateral
Dependency or Barriers to Entry
 Tangible -non-specific - mixed – highly specific
 Intangible – IPR - skills - knowledge
 Ability to switch or locked into a bilateral
dependency
 Tendency to continue to trade – barriers to entry
- effectively merge – breach competition
Controlling Specific Assets
 Investment in pre-contractual research – limiting
levels to avoid dependency – ensure competition
– defer problems
 International collaborations – alternative
approach:
 Share and balance investment
 Implement a “lock-in”
Uncertainty – vagaries,
manipulations, contracts and
competition
 External vagaries – force majeure
 Manipulation of information for advantage
 “evasive ignorance and ambiguity”
 Future work? or transparency
 Short-term contracts to ensure competition but
used on long-term projects
Frequency
 High costs of negotiation and contracts
 Re-negotiated and standard forms:
 Set industry standard – we know what to do or
inertia in management and relationships
 Too much of a good thing! – thousands of forms
– confusion – who does what?
Dimensions from LOTiSS
 MoD move to in-service contracting
 Benefits from civil practice to reduce costs and
inventory
 8 major case studies from military, civil and
construction
Frequency
 Previously maintained with spares, up-grades
and long life-cycles
 In-service support as growth market as major
projects decline
 Contracts and negotiations – complex and
incomplete
Uncertainty
 Competition is introduced or the threat of
competition
Specific assets
 Short term contracts policy restricts investment
 Prime contractors have specific assets that
demonstrate a bilateral dependency:
 IPR
 Warranty
 Knowledge and skills
 Management of supply chain
Any Questions?
Case Study: Capital
Equipment Supplier to the
Semi Conductor Industry
prepared by
John Garside
University of Warwick
Background

The company designs and manufactures high
technology ion implantation equipment for the
semi-conductor industry.
 Independent Market research (DataQuest &
VSLI) showed an estimated doubling in the
size of the market from 1998 to 2001.
Inside
manufacturing
plant in the UK
The 3PL-managed
warehouse in
Partridge Green,
situated 10 miles
away from the main
UK manufacturing
plant in Horsham
Overall Objective


The task was to design a manufacturing process
capable of increasing the volume of product shipped
Machine a Week (50 p.a.) to Machine a Day (MAD 250 machines per year generating £250m sales)
within two years, without any significant increase in
direct labour.
Build flexibility into the process enabling the company
to accommodate future business cycle peaks and
troughs, prevalent in the semiconductor industry,
without having to reduce staffing levels in the
downturn and also provide the basis for the next
business upswing to a planned £1 billion sales.
Key Factors




The business had been through a recession from
1996 and the order book had dropped from 18 units
per quarter to 4 units per quarter by1998
Marketing predicted the volume would increase by a
factor of eight in the next two years
The space on site was limited and the company had
a policy of controlling any increase in head count
The business was managed by people who had
developed the technology ten years earlier
Key Factors



Business has expanded from its Silicon Valley base
in the USA into a multi billion international business
operating in companies around the world.
The market demands new products and new orders
in the market recovery will be for Quantum an up
rated machine that will accommodate the standard
200 mm and also 300 mm silicone discs.
Swift a new concept machine that moves the beam
across the silicone disc as opposed to moving the
disc through the beam was needed to complement
the product range.
Key Factors

New operations manager appointed but business
dominated by engineering and marketing
 Small number of very important and influential customers
 Business was dependent upon winning the equipment
order for the complete fabrication shop which included the
ion implant machine
 Ion implant machine was the only major product
developed outside the USA
 Relied on the most advanced technology of any product
supplied by the company
 Ranked number two in the world behind Eaton
Question ?

If you were the newly appointed operational director
what would you do to ensure that you met the volumes
predicted by the marketing department?
Very significant bonuses and share options were
dependent upon delivering the business performance
commitments agreed with Senior Company Directors.
All the managers on site depended upon you making
the shipments for them to receive their rewards.
Course of action

Created a Teaching Company Scheme as a way of
recruiting new staff without increasing headcount.
 Made the well respected production manager with ten
years experience of running the factory full time
project manager.
 Enlisted the chief manufacturing engineer full time to
work on the project.
 Appointed administrator / chief liaison engineer to
keep everyone informed of progress and support
needed from across the site.
 Recruited four Teaching Company Associates and
paid them industrial salaries.
Key Strategies
• World Class Manufacturing Process
– harvesting “Best Practice” from Blue Chip
industries via the TCS, Networking with academic
and other institutions
• Automatic Link of Product Structure to BOM and
Sales Order Entry
– Enable system specific QMS
• Outsource Material Logistics
– Link with Blue Chip global logistics provider
Key Strategies
• Outsourcing of Major Assembly work to reduce cycle
time
– Detailing Supply Chain and Establish Agreed
Standard Operating Procedures.
– Proliferate “MaD Process” through the supplier chain
• Extension of Computer Aided Test System (CATS )
– Re-Engineered to include SPC, fully automated,
reducing cycle time
• Synchronised Site and Factory Operations
– Implement TQC onsite, SPC
– Factory Team to be Start Up Team
Policy Guide Lines
• True Paperless System
– Intranet/Internet/Radio Frequency LAN
connections
– Barcodes
– Electronic image manipulation (local and remote)
• Utilise existing systems
– PKM/PST
– FRACAS/Manman/Oracle/SAP
– CATS/PDM
• Seamless relationships with key suppliers
Purpose of the TCS project
• Common manufacturing methodology for
Quantum Batch Machine and new SWIFT
Implant including capability for manufacturing
other products
• Enable $3M/Head Revenue
Objectives for the project
• Demonstrate a machine a day capability by end of Q1 of
FY2000. Actually achieve a production rate of over a
100 systems years with a maximum target of 285
• Enable Revenue per head of $3M per factory employee
• Reduce Quote to Ship cycle times from 15 to 5wks
• Maintain On Time Delivery at greater than 98%
• Quality: Internal 6 Sigma
External < 1 field found defect per System
• Support mixed model Production
Key Assumptions
•
•
•
•
Revenue on 150 Systems Plus by 2000
Average Selling Price = $2.2M
Spares business is Outsourced
Support for site from up to 2 Design Engineers per
shift
• Work force 150 max Manufacturing Heads (not
including installation) - Direct:Indirect ratio 1:1
Key Assumptions
• MaD only applies to released products
• Build to order only - If configuration to change
remove product from line.
• Need to retain core expertise and product knowledge
• All functional Customer Special Configuration (CSC)
requirements are met by Options.
• CSC’s will be dealt with on a case by case basis and
may affect cycle time.
Key Assumptions
• Cycle Time reduction achieved through assembly by
vendors: Cable, Piping, Beamline, Wafer Loader,
Target Chamber, Integration, Strip/Pack (support from
Schenker), Shipping, Re-assembly
• Cycle Time reduction achieved through running Tests
over night (CATS IV)
• Retain Wafer Handling Set-Up as core competency
Key Assumptions
• Support on site from Vendors supplying subassemblies and installing standard components
• AIT will retain master Schedule, Product
structure,Quality & Test Plan
• 24 Hour working Seven Day working week
• Utilise Existing Buildings (B1/B2 < 100/Yr & A >
100/Yr)
• Oracle Mfg Implementation Start Date May 1st 1999
Key Management Actions




Identify suitable supplier to that were willing to invest
in the additional capacity to meet the predicted
market demands
Introduce rigorous process for evaluating and
selecting key suppliers.
Obtain formal agreements with suppliers on the work
they will be responsible for, including sub-assemblies
and installation on site
Establish electronic network for exchanging
information on build status, technical specification
and delivery schedules
Individual activities for Teaching
Associates
• Bill of Materials restructured to allow modular build of
implant machines and sub-assemblies subcontracted to
key suppliers
• Establish production planning control process to give
visibility to key suppliers and production departments
• Work with Engineering Department on Engineering
Change process and how these will be communicated the
the supply base
• Direct assistance to beam line supplier with BOMs & MRP
Individual activities for Teaching
Associates
“Create a Total Quality environment across the supply
chain to achieve consistency of product quality,
on-time delivery at an acceptable cost”
•
•
Integrated Manufacturing Quality System
- TQC, 5’s, Vendor Process FMECA’s for Assembly
Defined MaD requirements and introduced into Quality
Management System
Assemble machines at customer sites
• Defined specific Quality and Test Plan for each Ion
Implantation System.
• Site quality performance linked to Quality Plan:
Must achieve less than 1 Field Found Defect
• Two Day Assembly schedule introduced for systems
being assembled directly at customer sites
• Start Up Cycle Time to be equal to or less than at
Factory
• Factory System Engineer manages Start Up on site
• Established ‘AA’ Team: Retrofits, Rework, Late
Customer Configuration, Prototype/Engineering work
We were an Organisation that :
• worked very hard to do everything
• but missed some important things
Ops Strategy $300k rev/Ops hd,19 wk cycle time
100 Batch sys pa capability
10+ Field Found Defects/system
Poor Gross margins
By implementing the Operations Strategy during 1998 and 1999
• Analysis against best practice,shows our core competencies need to be :
System Collation, Supplier Management, Quality and Kaizen
• We outsource everything else to preferred long-term suppliers
Shipping, Warehousing, Expediting, Sub assembly , Module assembly etc
• We detail how we will work this way with a systematic approach to the entire
supply chain process (the Machine a Day or “MaD” process)
• We train and reorganise the existing workforce in the core competencies
• We accept that we won’t increase headcount and factory space except for the
core competencies
• We focus on what is really important
Product cost reduction, shorter lead times, improving quality etc
$3M rev/Ops head, 5wk cycle time,
280 sys pa capability Batch and SWIFT
<1 Field Found Defect /system
World class profitability
We will be a team that :
• Is Focussed on the important things
• Is the most productive, bar none
Achievements
 The project focused the company on identified core competencies
needed to sustain profitable growth; system configuration and
collation, supplier management, quality assurance and continual
process improvement.
 Logistics provision was identified as non-core and outsourced to
a Blue Chip Logistics provider.
 The full manufacturing scope for the new business ERP system
has been agreed with Oracle and the system currently being
installed
 The supply chain has been rationalised from several hundred
suppliers to initially 7, tier 1 companies, capable of providing
finished machine modules.
 Suppliers have the capacity for producing 25 systems per quarter
that is in line with current demand.
Achievements





Product process maps redesigned to support the new supply
chain and the company’s bills of material restructured to suit
outsourced, modular MAD production concepts.
Web-based supplier interface tools have been implemented
enabling full on-line interrogation of product build and test plans.
The build and test plans define activities to be undertaken by tier
1 suppliers and these are used for generating their own quality
documentation, conforming to standard operating procedures.
Touch quality hand over checks for modules have been agreed
with suppliers and self-certification approved.
A new computer automated test system (CATS) for Ion Implant
Machines has been created from a base test specification. The
system automatically generates the test plan from the machine
configuration and takes control of the verification programme.
Achievements





The system has a degree of built in artificial intelligence allowing
testing to continue unattended on the identification of minor defects.
Machine set-up and tests to be automated, leading to a test cycle
time reduction from 21 to 7 days.
The site layout has been redesigned to utilise the space created
from outsourcing manufacturing. The space in the warehouse and
build areas has been converted into multiple product test bays to
support the core competencies needed for ramp in production.
Learning from the MAD programme is now being adopted by tier 1
suppliers to increase effectiveness
The MAD programme has secured the future as a manufacturing
site, through becoming the most productive manufacturing plant in
the company and meeting the MAD objectives within 18 months
Achievements





The TCS programme designed a new manufacturing process allowing
production rates to increase from 4 systems per quarter to a peak run
rate for Q4 - 2000 of 37 per quarter, a nine fold increase with the
addition of only 25 final test technicians.
The peak demand in this business cycle has passed and orders are
down in Q1 - 2001 to 22 machines. The new manufacturing system
has accommodated this change without staff reductions in the factory.
Intel has reviewed the methodology developed by the company for
providing web-based information and automatic testing of systems.
And are considering a similar system
This innovative manufacturing process based upon strategic
partnerships, with preferred suppliers taking responsibility for
component manufacture has been adopted for Swift the next
generation
This Swift machine has been launched and five machines were
delivered in Q4 - 2000.
Achievements





The MAD project provided the foundation for ISO 9001 :2000
certification, achieved May 2001, a first in the semiconductor
market in the UK.
Established effective documented processes helped reduce
lead-times for the launch of the new Swift product into
manufacture by 30%.
The facility at Horsham has now been identified as a strategic
manufacturing site within the worldwide organisation.
Based upon key company measures of performance, it has
been demonstrated to be a more cost effective production
facility than operations based in the USA. Consequently, the
supply-chain model will be adopted for new products.
Volume production facilities to manufacture the new Swift
machine are currently being installed at Horsham and USA
based upon this approach.
Any Questions?
NB2BC Demonstrations
Supply Chain and Collaboration
Technologies
Demo Suite Layout
WMCCM
Demo
ediTrack
Demo
• Marketplace
• Supplier Collaboration
• Collaboration & Clusters
• Data and Process Visibility
• Virtual Partnerships
• Exception Management
• Online Communities
• Join Systems
• Hosted
• Hosted
ediTrack demo
WMCCM demo
NB2BC Main Screen
How to Use Your Legal
Department
 Penny-Anne F. Cullen,
LLB.(Hons), PhD
School of Law, University of Warwick
Traditional Western Lawyers’
Perspective
“Arms’ length contractual relations” (Sako, 1992)
 Presumption: protect your client through use of contract
terms and the legal system WHEN not IF things go
wrong

i.e. contracting for failure

Based on classical adversarial presumption of contract
law in the West (Macneil, 1973)
Traditional Western
Lawyers’ perspective
Contracts should be agreed before any work starts on the new
product/project
 Contract perspective

“presentiation” (Macneil, 1973, 1978, 1981)
Transactional contracts (Macneil)

Economic perspective
Neo Classical contracting (Williamson, 1996)
Risk averse

English commercial contract law
Classical sanctity of “freedom to contract”
Williams v Roffey Brothers &
Nichols (Contractors) Ltd (1990) 1
All ER 512
Courts adopted a pragmatic approach to ascertain the real
contract
 Parties varied the original terms of the subcontract for
mutual benefit

Also, avoided main contractor’s liability to client for damages
under main contract

Typified pragmatic business relationships of 20c
If in parties’ mutual advantage to continue contractual
relationship, on new terms = incentive for subcontractor to
complete on time
Relevance of Roffey to Established
Commercial Practice
If a main contractor agrees to a low price, with a
subcontractor, it acts contrary to its own interests because
it will never get the job finished without paying more money
(Glidewell LJ in Roffey)
But:
 Common practice in UK defence procurement

(ECLOS, LOTISS)

Significant parts of UK engineering and construction
industries
bid low – retain work – claim for variations
Classical Legal Presumption of
English Commercial Contract Law
 Brownsword R. 1997; 2000
 Collins H. 1999
 Watford Electronics v Sanderson (2001)
Adversarial basis
 Baird v Marks & Spencer Plc. (2001)
Special partner relationship with suppliers
No legal basis
Traditional Non-lawyers’
Perspective
Contracting perceived as outside the scope of reengineering activities
 Lawyers can be perceived as pests!
 But consider contracts significantly influence:

Logistics
Functionalities, costs, lead-times of finished products
Life-cycle support costs
Research Programme
 2 Principal phases
Effective Contracting & other Legal Obligations in
equipment procurement (“ECLOS”)
Long-Term in Service Support (“LOTISS”)
 Practical emphasis on cost and lead-time reduction
across the supply chain through:
Business Process Re-engineering
“Lean” Initiatives (Lamming, 1993)
Efficient contracting
Traditional Contracting
Process
Request for proposal and statement of work drafted
without any reference to supplier
 Customer maintains arm’s length relationships in order
to prevent allegations of bias during competitive
tendering
 Supplier could be wasting time and effort as a ‘stalking
horse’ with no real chance of winning the order
 Proposal prepared by supplier alone
 High risk of misunderstanding by both parties of
requirements and proposal details
 Face to face meetings begin very late and are
adversarial in nature

DOD Alpha Contracting Process


Collaborative working begins at the start of the process
If customer wants competition it will:
equal time and effort working with potential suppliers
avoid wastage attached to ‘stalking horses’

Process does not require actual competition
threat of competition may be adequate
Benchmarking against other supplier performance
Open book approaches

Collaborative approach
minimises scope for misunderstandings
Provides for realistic design specification
Results: Defence Practice



Progressively out-source long-term in-service support Private
sector unwilling to change from tradition of:
Need for incentives to change from distinct OE and spares
contracts to long-term support
If long-term contracts are outsourced by MoD, :
loss of in-house capability
Increased dependence on private sector providers
Issues in time of ‘national emergency

Therefore consider incentives to:
Ensure compliant contractor performance
Preclude opportunism and self interest
Results: Trends in UK
Contracting
Defence
Sector specific contracts
Smart Procurement:
“partnering” and IPTs effective?
ECLOS :
Code of Conduct – not legally
binding
Post Levene (1987):
Neo classical completive
contracting remains
Civil Aerospace
Company specific contracts
Risk-revenue:
i.e. Investment, risks and
profits shared
Overriding agreements:
govern long-term
relationships and specific
contracts
RELATIONAL CONTRACTING: CIVIL AEROSPACE
Memorandum of Understanding (1)
Formal
Long-term strategic alliance Co.Y&Co.B
Including non-disclosure clause
Outline design &
specifications
Memorandum of Understanding (2)
Formal
Supplier selection
Project “YYY” incl. & N.B
Knowledge valuation clause
Risk-revenue share basis
Detailed design &
specifications
Project contract
Formal
Initial production
All parties know
that preferred
suppliers 1 & 2
work on similar
terms
Co-located
project teams;
shared
computer
networks
TRENDS IN RELATIONAL CONTRACTING:
CONSTRUCTION EXAMPLE:
“Be” Form of Contract
Formal Framework Agreement: Collaborative Terms cannot be changed
Project Protocol (informal)
Risk Register (informal)
Purchase Order (formal)
Terms replicated to all
“purchasers” & “suppliers”
Role of project team but:
-Limited Autonomy
-Participants not legally
bound by Project Team’s
decisions
Risk Allocation Schedule
(formal) showing amount
included in target
cost/contract sum
“Relief Events” (formal)
Results: Contract
Documents
Adversarial contract terms promote adversarial relations
e.g. unbalanced risk allocation
 Unfair terms enshrining ex ante economic power promote
transaction costs through:

Complicated, unclear gain-share/risk-revenue share
Mistrust and defensive behaviours
Prolonged renegotiations
Delays and cost-overruns
Results: Contracts can:
Support collaboration and
mutual cooperation
 Balance benefits from
monitoring and trust
 Develop long-term relations
 Reduce costs of

detailed monitoring
Renegotiations
Claims

Improve efficiency







Encourage mistrust,
obfuscation
Discourage collaboration
Establish/enshrine
adversarial relations
Create unnecessary
transaction costs
Duplicate resources
Time and cost overruns
Reduce efficiency
Conclusions: Lawyers should
consider:

Delays and cost escalations: unrealistically prescriptive contracts are
drafted before detailed specifications known
Design, develop, deliver products on-time, without detailed requirements
specifications during initial contract negotiations

Fairness: Contracts mutually perceived as fair engender good
relationships (and vice versa)
Mutuality - pre agreement as well as during performance
Consensual relations, appropriate incentives and “lean” principles reduce transaction
costs


Incentives: Contract terms containing perverse incentives yield perverse
results
Trust: Relationship between contract processes and terms
Trust is the missing link in the efficiency chain
Mistrust <-> transaction costs <-> inefficiency

Risk: joint indentification, understanding and management
Dissemination and
Deliverables

LOTISS website
Case studies
Good practice and learning
points


Route map
Publications
Internationally refereed
academic journals
Industry/defence journals

Workshops
CIRIA
US Lean Construction
Institution







Conferences
Academic
Ministry of Defence (MoD)
Industry
National Audit Office
MoD’s Defence Logistics
Organisation
Legal practices and lawyers’
associations
Any Questions?
SUpply Chain
Cost Effectiveness
& Swift Service
SUCCESS
A framework for improving supplychain visibility and robustness
Dr Carlos Mena
Cranfield University
Agenda
 Overview of SUCCESS Project
 The Supply Chain Time and Cost Mapping
Toolkit (SCTCM)
 Success Findings and Benefits
Supply Chain Costing Issues
 Need for increased visibility
of cost in processes
 Migration of costs between direct and indirect
activities
 Change in emphasis from asset ownership to 3rd
party providers
 Need for a holistic approach to costing the entire
supply chain operation
 To identify the many cost trade-offs between
business processes
SCM Decisions
 Cost of serving different customers
 Product/service cross-subsidisation
 Supply Chain trade-offs
 Benchmarking
 Sourcing decisions e.g. make or buy
 Supply Chain capital investment decisions
Research Challenge

Difficulty in visualising true costs across the supply chain

Difficulty in identifying wasteful processes

Difficulty in costing waste in the supply chain

Difficulty in evaluating cost trade off analysis

Lack of ‘simple’ tools to facilitate management decision
making
The SUCCESS Project
“SUpply Chain Cost Effectiveness
and Swift Service”
SUCCESS Objectives
The main objectives of the project were:
 To assess supply chain costs within the Food and Drink
industry

To develop a methodology to identify waste in
processes through a combination of process mapping
and activity costing approaches

To disseminate the research findings
Project Team &
Stakeholders
McCormick
Bernard
Matthews
Masterfoods
Project Manager
Co-investigator
Principal Investigator
The Core Team
Senior Research Fellow
Research Director
Cranfield
University
Senior Research Fellow
The Chartered Institute
Of Logistics and
Transport (UK)
Government
(EPSRC)
Research Director
Warwick
University
Supply Chain Time & Cost
Mapping - SCTCM

Supply Chain Time and Cost Mapping (SCTCM) Toolkit is a
framework for analysing supply chain processes in terms of time
and cost

The main objectives of the SCTCM are:
to identify areas of waste in the process
to provide visibility of time and cost across supply chain processes
to analyse the cause-effect relationships between different stages of the
supply chain

The SCTCM is a project-based approach that should be
implemented by a multidisciplinary team of people from the
company or companies involved
Supply Chain Time & Cost
Mapping Toolkit
3. Cost
Collection
5.Translation
Cost Matrix
6.Cost-Time
Analysis
1. Project
Definition
2. Process
Mapping
7.Cause-Effect
Matrix
4.Time-based
analysis
8. Evaluate
Scenarios
3
5
1
2
1. Project Definition
4
6
7
Project Terms of Reference
Objectives:
To identify and cost the areas of waste in the process
To provide visibility of cost across the supply chain
Scope:
Supplier
Inbound
Warehouse
Product Scope:
HdeP
Geographical Scope: France
Project Team:
Sponsor:
Leader:
Finance:
Logistics:
Planning:
Processing
Packaging
Distribution
Process Scope
Timeframe:
John
Mark
Maria
George
Sarha
Planning
Workshop 1
Workshop 2
Workshop 3
01/09/02
15/09/02
29/09/02
12/10/02
Retailer
8
3
5
1
2
2. Process Mapping
4
6
7
Decomposition
DecompositionDiagram
Diagram (Child)
Orders
Schedule
Input A
Eggs
Farming
Turkey
Farming
1
By-products
2
Evisceration
Processing
& Deboning
Input B
Feed
3
Preparation &
Cooking
Other
inputs
4
Packing&
Slicing
Packing
Packaging
Material
5
W/h &
Distribution
Farms
A-0
Equipment
F1
Turkey Ham
Product
A
Labour
F1
Equipment
F2
Labour F2
Honey
Product
Roast
A
Turkey
3PL
Viewpoint: Production
8
3. Cost Collection
3
5
1
2
4
Activity Based Costing (ABC)
 Products & processes consume activities
 Activities consume resources
 This consumption of resources is what drives
cost
 Understanding this relationship is critical to
successfully managing overheads
6
7
8
3. Cost Collection
3
5
1
2
4
6
7
Activity Based Costing (ABC)
 Use activities identified at the process mapping
stage
 Sort costs into direct and indirect
 Identify resource drivers
 Trace consumption of resources to activities
 Identify cost drivers
 Cost product’s consumption of activities
8
4. Time Based Analysis
3
5
1
2
4
6
7
8
Defining Value
Value is a property of a product or service
that the customer cares about and
would be willing to pay for.
Value is added to products or services when all three criteria
are met:
1. Customer cares about the change
2. Physically change the item
3. Right first time
Gregory and Rawlings 1997
3
5
1
4. Time Based Analysis
2
4
6
7
8
Sourcing Raw Mat.
Processing
Sourcing Packaging
Package
Warehouse
Distribute
0
20
Value-adding Time
40
60
Non Value-adding Time
80
3
5
1
5. Cost Translation
2
4
6
7
8
Translation of General Ledger Costs to Activity Costs
Expense
Headings
Staff Costs
£K
Activities
243
£K
Evaluate new suppliers
25
N.I. Pension,
etc,
54
Develop new purchasing
programmes
43
Company Cars
18
Negotiate with suppliers
62
Telephone
16
Process orders
Stationery
3
138
Supplier intelligence
18
Accommodation
41
Resolve supplier
problems
64
I.T. Support
37
Departmental admin.
64
Staff training
27
Staff Restaurant
4
416
Develin and Bellis-Jones 1999
416
3
5
1
2
5. Cost Translation
PROCESS 1
20.2%
Overhead
10.4 %
Labour
0.1 %
Raw Materials
89.12%
PROCESS 2
25.1%
PACKAGE
86.2%
Overhead
14.8 %
DELIVERY
100%
Labour
2.4 %
Pack Materials
82.8 %
3PL
100%
4
6
7
8
CUSTOMER
3
5
6
7
1
6. Cost-Time Profile
2
4
8
Distribution
100
90
Cumulative Cost %
80
Packaging
Storage
70
60
50
Blending
40
Sterilizing
30
Sourcing
20
10
0
0
10
20
30
40
50
60
Cumulative Time %
70
80
90
100
3
5
1
2
6. Cost-Time Grid
> 20%
% of
Total Cost
< 20%
Cost
Opportunities
Low Cost and
Responsiveness
Opportunities
< 20%
High Cost and
Responsiveness
Opportunities
Responsiveness
Opportunities
% of
Total Non ValueAdding Time
> 20%
4
6
7
8
3
5
1
2
6. Cost-Time Grid
Packaging
> 20%
% of
Total Cost
< 20%
Cost
Opportunities
Low Cost and
Responsiveness
Opportunities
Blending
< 20%
High Cost and
Responsiveness
Opportunities
Distribution
Sourcing Raw
Materials
Responsiveness
Opportunities
Sterilising
% of
Total Non ValueAdding Time
Warehousing
> 20%
4
6
7
8
3
5
6
7
1
7. Cause - Effect Matrix
4
Tr
an
sp
Ta or
ke t fr
d om
Un eli
F
lo ve r ran
ad
y
no ce
Lo
t
te
ad ruc
to
d k
Ch eli (pla off
v
e r ce ice
ec
y
k
in pal
p
W
a r alle fo i lets
n
eh
ts
i
an to s n il
Re o u
e)
y
s
d
s
e
pl
en
Pr loc te m
a
o
i
M
sh
te
d
er
in
ch pic uct
to
ra
Do an d kin
g
ck
wn ise
lo
r s ca
l
Ch ad
t
c
i
ec info a ns on
k
r
p
m
Ru for
a t r od
i
A
n
u
DR va on e ct
o
ila
G
l
P
e
vil
en
c n
ity tro h an
er
ni
Pi ate
ca dh e
ck
lly
pi
ld
c
p
k
W r od ing
uc
ai
lis
tt
t
t
o
Lo
be
ad
lo
a
t
Di r uc ded
k
st
in
r ib
to
Un utio
tr u
n
lo
ck
to
ad
m
M
e
er pro
du r ch
ch
c
.
W
Sc t a a nd
ar
i
t
eh ans me se r
ar
pr
M ou
c
o
s
er
ch e a du h. G
. D t m ct i
n ar a
el
e
ge
ive rch
an
rs
d
to
st iser
or
e
2
Causes
Cause - Effect Matrix
Effects
8
1 Transport from France
0
Root Causes
2 Take delivery note to office
-
3 Unload truck (place pallets in ile)
3
3
4 Load delivery info into system
-
3
-
5 Check pallets and locate into rack
3
-
1
-
6 Warehouse Product
3
-
1
-
-
7 Replenish picking location
-
-
-
-
-
5
8 Merchandiser scans product on handheld
-
-
-
-
-
-
-
9 Downlad information electronically
-
-
-
-
-
-
-
1
10 Check for availability
-
-
-
-
-
5
-
1
3
11 Run DRP
-
-
-
-
-
-
-
-
-
-
12 Generate picking list
-
-
-
-
-
-
-
3
3
1
1
13 Pick product
-
-
-
-
-
-
5
3
3
1
1
5
14 Wait to be loaded into truck
-
-
-
-
-
-
-
-
-
-
-
-
5
15 Load truck
-
-
-
-
-
-
-
-
-
-
5
3
1
16 Distribution to merchandiser
-
-
-
-
-
-
-
1
1
1
5
-
1
17 Unload product at mearch. Garage
-
-
-
-
-
-
-
1
1
1
1
-
18 Merch. Scans product in
-
-
-
-
-
-
-
3
3
1
3
19 Warehouse at merchandiser
-
-
-
-
-
-
-
5
5
5
20 Merch. Delivers to store
-
-
-
-
-
10
-
5
23
5
24
5
15
9
6
0
6
3
2
4
0
4
0
5
0
5
1
9
0
8
18
1
Key Activities
5
5
Affected
1
1
3
5
-
3
-
-
-
3
16
5
-
5
-
-
-
-
3
5
26
-
5
21
11
-
-
-
3
8
5
6
3
3
14
19
10
28
5
6
33
5
0
3
5
1
2
8. Evaluate Scenarios
4
6
7
Saving of Time
Saving
of Cost
100
90
% Factory Cost
80
70
60
50
40
30
20
10
0
0
10
20
30
40
50
60
70
Cumulative Time (Days)
Original Scenario
New Scenario
80
8
Cross Case Analysis
Product Comparison
Company A
Company B
High
Company C
Demand volume
High
High
Temperature
Regime
Ambient (controlled) Ambient
Chilled
Demand stability
Relatively stable
Some seasonality
Relatively stable
Some seasonality
Relatively stable
Some seasonality
Non-promotional
Shelf Life
+ 1 year
+ 1 year
21 days
Time Analysis
Total Supply Chain Time
Time (%) by Process
Product C
Product C
Product B
Product B
Product A
Product A
0
25
SOURCE
50
MAKE
75
DELIVER
100
0%
25%
SOURCE
50%
MAKE
75%
DELIVER
100%
Value Analysis
Value Adding Analysis
Total Time
Value Adding Analysis
(%)
Product C
Product C
Product B
Product B
Product A
Product A
0
25
50
VA
NVA
75
100
0%
25%
50%
VA (%)
NVA (%)
75%
100%
Product Cost Comparison
Source
Make
Deliver
Product A
43%
53%
4%
Product B
14%
70%
16%
Product C
14%
83%
3%
Cost – Time Comparison
100
Deliver
90
80
% Cost
70
60
Make
50
40
30
20
10
Source
0
0
10
20
30
40
50
60
70
80
90
100
Cumulative Time (Days)
Product A
Product B
Product C
Costing Methods
Company A
Company B
Company C
Source
Standard Costing
Apportionment and
Absorption Costing
Standard Costing
Apportionment and
Absorption Costing
Standard Costing
Apportionment and
Absorption Costing
Make
Standard Costing
Apportionment and
Absorption Costing
Standard Costing
Activity Based Costing
Apportionment and
Absorption Costing
Standard Costing
Apportionment and
Absorption Costing
Deliver
Negotiated average cost
with a third party ABC
Negotiated average cost
with a third party
Negotiated average cost
with a third party
Cost Visibility
 Accounting policies and systems
 Profit
 Use of third parties
 Equivalent units
SUCCESS Contributions




The Supply Chain Time and Cost Mapping (SCTCM) provides
visibility of both cost and time across supply chain processes
The SCTCM can be used to evaluate waste and the associated
costs, leading to quantifiable process improvements
The SCTCM provides visibility of cause-effect relationships in the
supply chain
The SCTCM can be implemented ‘in-house’ by medium and
large organisations in collaboration with their supply chain
partners
SUCCESS Key Findings
The relationship between cost and time in processes is
non-linear. This challenges the traditional view that
reducing non-value adding time implies a proportional
reduction in cost
 Over 80% of supply chain time may be classified as
non-value adding
 Shelf-life has a strong impact on process efficiency
 Costing information is usually not shared among supply
chain partners

Industrial Partner Benefits
The Industrial partners involved in the project have
claimed the following benefits:
Direct financial benefits in excess of £1.5 Million
Identification of areas of opportunity for improvement
Structure and tools for supply chain analysis and design
Ability to analyse the total cost of a product by activity
Increased visibility of cost and time in processes
Improved relationships between the financial and operations
personnel
Any Questions?